How do you save for large purchases? Are your savings in one big savings account waiting for you to decide what you should buy or maybe what you have to buy? Are you setting goals and saving specifically for those goals? Are you setting goals but not reaching those goals and having to supplement your purchases through another account or putting your purchases on a credit card?
There are as many saving and goal setting strategies as there are people. We are all different. I have learned over the years as a financial advisor that the people that are in the best shape financially save intentionally. That is they set a specific goal for their savings and then set a plan in motion to reach that goal. Each account has a purpose and they set aside a piece of their income every month, every week or every two weeks to save for that purpose. Sound crazy? Sound time consuming? Sound impossible? Well I am here to tell you that it really is none of those things. With just a little bit of planning and goal setting you can do it.
Saving for large purchases can actually be freeing and help you relieve stress. It starts with a goal in mind. You may have heard the acronym that goals need to be SMART. That is they need to be Specific, Measurable, Able to achieve, Relevant, and have a Timeline. A few years back I noticed how the roof on my house was starting to look worn. I realized that I would need a new roof in about two years. That was my goal. To save enough money to pay for a new roof in two years. With that goal I had something Specific. I also had a Timeline. I also had a Relevant goal because if I didn’t replace my roof, in a few years I would start to have leaks and I didn’t want that. The next thing I needed to determine is am I Able to achieve this goal. So I found out how much the roof would cost in two years. I divided that by 24 months and found out how much I would need to save every month to save that much in two years. I looked at my budget and determined that yes, I had the capability to save that much every month. So I was Able to achieve this goal over the next 24 months. Finally I determined the goal is Measurable because I could measure every month if I was on track. I knew the amount I needed to save every month and I could track that. I had a SMART goal. The last piece of achieving this goal was execution. Every month when I was paid I had a listing in my calendar to transfer the monthly amount and put that amount into a separate account in my online bank. This is important because I kept this amount separate from my emergency account and my monthly spending account so that I did not interfere with my goal of paying cash for my roof.
As you can see from this example. Setting a SMART goal and executing it is very different from hoping I would have enough money to replace my roof when the time came. I didn’t say, “Well, when the time comes I will have to find a way to pay for my roof.” Or, “Hopefully they will have financing available because I don’t have the money to pay for a roof right now.” Instead I knew I would need a roof in a couple of years so I set a SMART goal and executed it to make it happen. How do you think I felt when I had the cash available to pay for the roof and I didn’t have to finance it or scrounge up the money from my emergency fund or my retirement? Well, it was stress free! It felt great!
So what are your hopes, wants and dreams? I had a want. I wanted to replace my roof. That’s not real exciting but it was something I needed to do. What are your hopes, wants and dreams? Maybe you are dreaming of a big vacation, or a new television, or new furniture, or a car? Maybe it is something more serious. Maybe you have a child on the way and you need to save for the anticipated medical bills, clothing and diapers? Maybe it is the dream of owning a home? Whatever it is for you, you need to try to anticipate the cost of these things and plan for them. Check out the goal setting steps below. This tool will help you envision the process.
|Brainstorm list of hopes wants and dreams
|Set SMART goal
|3) Create an action plan
|4) Determine weekly or monthly saving target
Once you have determined the weekly or monthly saving target you then need to execute it. That is you need to save that amount into a separate account or envelope if you are saving the money at home.
You can use this strategy for any large purchase. You can pay down credit card debt, you can save for a wedding, you can save for a car, or you can save for college. Really the applications are endless. The key is that you need to determine your priorities. You should do this by brainstorming and then coming to an agreement if you have a spouse or significant other.
One last piece of advice. Since these are long term goals things can change while you are saving for these goals. Review these goals on a regular basis. Together with your spouse or significant other if you have one. If your circumstances have changed then you may need or want to change your goals.
Saving for large goals shouldn’t be haphazard. Take the time to plan for these goals and save accordingly. This will put you in control instead of these things controlling you. You will be very happy when the time comes to pay for a large purchase and you have the cash to do it!
Jeff Brindley is a financial advisor at RWS Financial Group. He contributes his financial column Brindley’s Briefs to Gazeta Dielli every month. You can reach him at 833.797.4636 X137 or via email at Jeff.B@RWSGroup.org.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc. a broker-dealer, Member FINRA/SIPC. Jeffrey Brindley, Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. RWS Financial Group is not affiliated with Cambridge Investment Research.